Stock Markets Are Likely to Struggle Despite the Recent Rally

Although stock markets are trading well above the lowest level that they had hit in March, the market analysts believe the risk to the downside is larger than the prospect of the upside from the current level. 

This is because forecasts are indicating virus-related shutdowns could negatively impact economic numbers beyond the current quarter and this year.

“In 2008 in the fourth quarter, there were many different rallies – I call them bear market rallies – some of which almost hit 20% a couple of times, but the market did not bottom until March 2009,”

Goldman Sachs chief equity strategist David Kostin said.

Stocks bounced sharply in early Tuesday trading with Dow Jones Industrial Average surged almost 900 points, but the stock markets gave back all the gains in afternoon session amid the highest number of coronavirus deaths in a single day.

All three major US indices moved into a bull market technically because all three are up 20% from recent lows. Despite recent gains, Charles Schwab analyst says,

“If we rebound so quickly from the bottom and go right back into a sharp upturn, which frankly we’ve almost done, it concerns me that we’re going to have a second downturn.”

SPX Index Chart

Oil prices are also making big swings over the last couple of days. However, the recent rally is weighed by concerns over sluggish demand and disagreement between oil producers.

WTI crude oil plunged 9.4% to $23.63/bbl following report of a larger than expected increase in crude inventories. The American Petroleum Institute reported inventory growth of 11.9m barrels last week, the second straight week of growth.

On the other hand, the market pundits believe supply overhand for April stands around 25m barrels a day while the demand side is likely to remain stumpy in the coming months.

Crude oil demand declined 30% in March; the lockdowns across the world is set to negatively impact demand numbers in April.



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